Judi Bevan: Blood on the high street, a discount junkie on every corner

This retail downturn is here to stay - it is a trend not a blip. The borrow-and-spend - and borrow-some-more - boom of the past five years shuddered to a halt last week after figures showing that retail sales in April were down a precipitous 4.7 per cent on the same time 12 months before, the biggest fall since 1995. Coming after a steady decline in sales growth over the past eight months, the dire figures shocked even the Bank of England's phlegmatic wise men into admitting that they may, perhaps, have been a little too bullish on the consumer spending outlook. Interest rates were held at 4.75 per cent for the ninth month running.

This retail downturn is here to stay - it is a trend not a blip. The borrow-and-spend - and borrow-some-more - boom of the past five years shuddered to a halt last week after figures showing that retail sales in April were down a precipitous 4.7 per cent on the same time 12 months before, the biggest fall since 1995. Coming after a steady decline in sales growth over the past eight months, the dire figures shocked even the Bank of England's phlegmatic wise men into admitting that they may, perhaps, have been a little too bullish on the consumer spending outlook. Interest rates were held at 4.75 per cent for the ninth month running.

Just as they were a decade ago, big retailers are talking of bloodbaths on the high street and in the mall as they battle for a shrinking share of the consumer's purse. For some it could be a fight to the death. As share prices tumble, predatory bidders are circling those in trouble. Consumers, whose penchant for riotous living funded by higher mortgages and credit card debt made them the heroes of New Labour's strong economy, have taken fright.

In July 2003 interest rates were 3.5 per cent, giving consumers the cheapest money since Bill Haley sang "Rock Around the Clock" in 1955. Consumers had a wonderful party, but the better the party the worse the hangover and economic cycles are no exception.

Since last August, when the upturn in interest rates began to hurt, consumers have been assailed by fears and uncertainties along with multiple assaults on their spending power from national and local government. Will their pensions be as much as they thought? Will they even be there at all? Will their houses continue to provide a pot of gold for retirement? Will they be caught by Gordon Brown's next stealth tax?

The rate of growth in household income is dipping and tastes are veering away from conventional shopping as we become sated with clothes and gizmos. "No, I don't want another upgrade," I heard myself say irritably to a mobile phone dealer the other day. Apple iPods may still be hot but our appetites for plasma TVs and digital cameras appear to be waning.

The retail analyst Verdict Research reckons British consumers now spend £13bn a year less in shops than they did five years ago, opting instead to channel money into dining in restaurants and flitting off on easyJet for the weekend.

Research also shows that when consumers do shop they come away less satisfied than they used to be. Yet, in the UK's mature retail market there are more retailers fighting for their "share of wallet".

British consumers are not particularly poor on paper; they just feel poor as stealth taxes, higher oil prices and interest rates eat into their disposable income. According to Simon Ward, economics guru at the investment firm New Star Asset Management, people's net wealth ratio is historically high while the savings ratio at 6 per cent is not as low as in the late 1980s Lawson boom.

The reluctance to shop has much to do with simple fear. Memories of the bust that followed the Lawson boom, with all the horrors of negative equity and the recession that accompanied it, linger on. Base rates at 4.75 per cent remain historically low but they have still jumped by more than a third from their 2003 low point, when many people took out fixed two-year mortgages, which are now being painfully renegotiated.

It is possible lower consumer spending will trigger a recession if oil prices spike higher or if there is another large-scale terrorist atrocity. Simon Ward's recession indicator suggests this is unlikely in the next 12 months but things can change in a few months.

In the early 1990s, trusted brands such as Marks & Spencer sailed through the recession with a tried and tested mixture of quality, value and service. We trust M&S rather less today and Tesco, with its 12 per cent share of all retail spending, rather more, even though it has earned the title of Britain's Wal-Mart. We like one-stop shopping so much that retail consultants now organise seminars to teach other retailers how to fight off the onslaught.

As competition became tougher, retailers have lured us with discounts, sale days and special offers. Their problem is we are now disinclined to pay full price for anything other than food. We have become a nation of discount junkies, making profits harder to achieve.

That is why in the next few years some household names with lengthy histories will disappear from our retail landscape as only the most efficient operators survive. It must be a chilling thought for Boots and WH Smith to know that in America, in areas where Wal-Mart is dominant, their kinds of shops no longer exist.

Judi Bevan is the author of 'Trolley Wars: the Battle of the Supermarkets'